Indian Food Industry Supply Chain Challenges

upply Chain depending on the Focal Point

Focal Point

Upstream

Downstream

1. Farmer

1. Traders of seeds, fertilizer,

pesticides and agro-machinery.

1. Middlemen i.e Mandi

2. Food company
3. Households

1. Food Processing
Company

1. Farmers

1. Distributors

2. Mandi-agents

2. Wholesalers

3. Suppliers of food preservatives,

edible-colors, plastic-aluminum
packaging etc.

3. Retailers
4. End customers

Food Products Classification

Processed Product
Primary
Secondary

Tertiary

Description
Products which are consumed in the original state and have no
value addition. (e.g. Fruits and Vegetables)
Basic level of processing: grading, sorting, cleaning, cutting,
drying, grinding etc. before they are consumed. (e.g. dried fish,
turmeric powder, chili powder, wheat flour.)
Combining multiple primary, secondary products from above and
doing high value additions (e.g. ice creams, biscuit, jam, cakes,
pastries etc.)

Upstream Challenges
1. Long and Fragmented Supply Chain

The supply chain is

plagued by a large
number of
intermediaries.
The farmer only gets 2030% of the total value of
farm produce
For Dairy industry, the
corresponding figure is
60%.
Compared to markups of
6-8% in US, markups are
around 60% in India.
All these have a 2
pronged effect on the
industry:
It reduces the
returns for the
farmer/producer, and
food products

2. Wastage in the Supply Chain

India is one of the largest

waster of food products
amounting to $440bn every
year.
Around 50% of the cost of
milk is due to wastage,
while 18% of fruits and
vegetables production gets
wasted each year.
This has a profound effect
on food prices
The biggest reason for this
is primarily insufficient
availability of cold storage
and warehouse
infrastructure

3. Lack Of Cold chain Infrastructure

Till 2012, India had 6300 cold

storage facilities with a capacity of
30.11 million metric tonnes. Of
these about 60% are located in
just 4 states.3 major impediments
are:
High Lifecycle costs: for an initial
capacity of 6000 metric tonnes, an
investment of Rs 50 mn excluding
land is required. Rising property
prices add to the problem. With a
peak electricity power deficit of
9%, running these facilities on fuel
backup adds to the cost
Different storage requirements:
About 3/4th of the storage
capacity is used for storing
potatoes alone in India. Milk, meat
and poultry in addition have very
different storage condition
demands.
Uneven distribution: most of these

Internal Side Challenges

1. Obsolete processing Plants
Many of the food processing plants are old and use traditional
technologies, which result in low processing efficiencies.
This in turn increases the per unit operational cost of processing.
Most of the businesses run on a small scale and have limited ability to
do product development by themselves, or improve the technology
2. Lack Of Adequate Manpower
Shortage of skilled, semi-skilled and unskilled workers has emerged as
a critical factor impacting the competitiveness of the food industry.
At each level in the value chain, there are strong deficiencies in
technical knowhow and support.
There is still a gap in the knowledge transfer from the laboratory to the
industry.
While at the farm level, farmers are not aware about the types and
timing of crops, chemicals to be used, channel managers are not aware
of managing storage conditions and handling of the ultimate produce at
the customer end.
3. Inconsistency in Centre/State policies
Several schemes are launched by government of India with varied
objectives but the same beneficiaries.

Downstream Side Challenges

1 Road/Rail Infrastructure and Port Logistics

Less than 2% of India is covered by National Highways, which handles

40% of the Cargo.

Normal distance travelled by an Indian Truck is 250-300 km/day as

against an International norm of 600-800 km/day

Most Indian cities like Delhi impose restrictions by blocking the trucks
during day time.

In Ports, high dependence on manual labour and low technological

presence impacts the supply chain lead time.

The cost of an Import Container box in India is $500 as against $300-350

in foreign ports.
2 Underexposure of Organized logistics

In India, only 6% of the logistics is organized.

There are lot of middlemen involved and the time taken for the produce
to reach the end consumer results in Food Wastage and price escalations.

Despite 100% FDI in logistics allowed, most companies are limiting

themselves to commercial areas due to lack of infrastructure in non
urban areas
3 Absence of Adequate Warehouses

The crop production has gone up significantly over the years, but the
warehouses have not increased.

In 2010-2011, the Food Grain produced was 233 Million Metric Tons. The
storage capacity owned by the Government was 91 Million Metric Tons.